Bob Doll: Bearish arguments for stocks overstate the negatives

Bob Doll: Bearish arguments for stocks overstate the negatives
Investment landscape poised for significant change but stocks should beat bonds over the next six to 12 months.
DEC 08, 2015
By  Bob Doll
Financial markets have been beset by an assortment of issues in 2015. The manufacturing sector slowed, Chinese growth weakened, commodity prices fell, deflation concerns persisted and geopolitical risks grew. Given this backdrop, it would hardly be surprising to see equities and other risk assets lagging, but they are not. Enough counterbalancing factors (including low inflation, decent U.S. economic growth and supportive monetary policy) have allowed U.S. equity markets to post modest gains so far this year. But how long will this continue? We believe the investment landscape is poised to undergo significant changes next year. The effects of the long-term rise of the value of the U.S. dollar and corresponding decline in commodity prices should begin to fade. At the same time, headline inflation should begin to advance as the global economy gains some momentum. (More: Bill Gross says investors should protect investments, not search for higher returns) TIGHTENING PHASE And, of course, the Federal Reserve is likely to be at the start of a tightening phase. Although we expect rate increases to be slow and modest, it is important to remember that it has been nearly a decade since the Fed raised rates. As such, it will likely take some time for investors to determine how to respond, which could contribute to volatility. Given these changes, it is fairly easy to make a bearish argument for U.S. equities: U.S. financial conditions are tightening and corporate profits are struggling. Many companies are starting to see lower levels of free cash flow, which could mean reduced corporate buybacks. And without repurchasing activity, higher revenues and sales would be required to produce earnings gains. Yet, the revenue outlook is troubled, thanks to the ongoing strength of the U.S. dollar. (More: Holiday season not the time to buy retail ETFs) We think this view is overly negative. The risks of a global recession appear low, and we think the world economy is more likely to accelerate rather than slow next year. The pockets of economic weakness that occurred in 2015 were concentrated in manufacturing and in emerging markets, which were linked with the collapse in oil prices. CONTINUED ACCELERATION Our moderately constructive outlook is predicated on our expectations for a continued acceleration in U.S. growth, a recovery in the eurozone and stabilizing growth in China. We expect such an environment will mean increases in both equity prices and government bond yields. As such, we expect equities will outperform bonds over the next six to 12 months, although the ride is likely to be bumpy. Bob Doll is senior portfolio manager and chief equity strategist at Nuveen Asset Management. This commentary originally appeared on his blog.

Latest News

Maryland bars advisor over charging excessive fees to clients
Maryland bars advisor over charging excessive fees to clients

Blue Anchor Capital Management and Pickett also purchased “highly aggressive and volatile” securities, according to the order.

Wave of SEC appointments signals regulatory shift with implications for financial advisors
Wave of SEC appointments signals regulatory shift with implications for financial advisors

Reshuffle provides strong indication of where the regulator's priorities now lie.

US insurers want to take a larger slice of the retirement market through the RIA channel
US insurers want to take a larger slice of the retirement market through the RIA channel

Goldman Sachs Asset Management report reveals sharpened focus on annuities.

Why DA Davidson's wealth vice chairman still follows his dad's investment advice
Why DA Davidson's wealth vice chairman still follows his dad's investment advice

Ahead of Father's Day, InvestmentNews speaks with Andrew Crowell.

401(k) participants seek advice, but few turn to financial advisors
401(k) participants seek advice, but few turn to financial advisors

Cerulli research finds nearly two-thirds of active retirement plan participants are unadvised, opening a potential engagement opportunity.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today’s choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave